What is Crowdfunding



Crowdfunding is a way to raise money by asking many individuals to contribute funds, often in small amounts, to a specific business venture and cause. The contributions can be in small amounts, say $1, or large amounts such as in the thousands of dollars or even millions.

"Rewards" Funding Example: Carmen's small business sells jelly made from fruit picked from her family's New Mexico farm. To keep her business afloat or to help it grow, Carmen can turn to the Internet to seek online donations from the public who contribute small amounts of money and expect nothing in return. Carmen sends a sample of her jelly as a thank you; large donors might even get a jelly named in their honor.

"Equity" Funding Example: Carmen's jelly orders far outpace her production capability. She needs to hire people and move out of her house to meet demand. New legislation has directed the SEC to write rules that will change how Carman can raise money online. Once the rules are written, Carman will be able to use the Internet to raise up to $1 million each year by selling investments in her company to thousands of investors. Because Carman will be issuing shares in her company in exchange for investment capital, her supporters are no longer donors; they become investors and will expect a financial return on their investment.